What is SIP? Full Form, Benefits & How to Start SIP in Mutual Funds

In 2023, over ₹1.5 lakh crore was invested through SIPs across India, showing the rising faith among investors in this disciplined investment method. Monthly SIP inflows crossed ₹17,000 crore as per AMFI data, making it one of the most preferred ways to invest in mutual funds.

Meet Rohan, a 28-year-old IT engineer from Pune. He earns ₹75,000 monthly and wanted to start investing, but market ups and downs confused him. His colleague suggested SIP, Systematic Investment Plan. Curious but cautious, Rohan started with just ₹2,000 per month. Fast forward five years, Rohan’s investment habit turned into a corpus of over ₹1,80,000, without stressing over market timing. This blog traces what SIP is, its benefits, types, and how you too can start your SIP journey smartly, like Rohan.

What is the Full Form of SIP?

SIP stands for Systematic Investment Plan. It allows individuals to invest a fixed amount regularly into a mutual fund scheme. This method promotes disciplined investing and eliminates the need to time the market.

Example

If you invest ₹5,000 monthly for 10 years in a mutual fund giving a 12% annual return, let’s see how:
 

The power of long-term SIP investing at a 12% annual return is demonstrated by the fact that an investment of ₹5,000 each month for ten years can almost triple in value.

How Does SIP Work?

SIP works by deducting a fixed amount from your bank account on a set date and investing it in a mutual fund scheme. You get units based on the Net Asset Value (NAV) of the fund on that day.

Read More – What happens if you invest ₹12 Lakhs today vs. ₹10,000 SIP for 10 years?

Example- If NAV is ₹50 and you invest ₹2,000, you get 40 units. Next month, if NAV is ₹40, you get 50 units. In order to average out the cost over time, the number of units you purchase varies with market NAV, as shown in the table below. 
 

SIP is a dependable approach for long-term investors since it gradually reduces market volatility by buying more units when prices decline and fewer when they increase.

Key Benefits of SIP

SIP offers multiple benefits to investors, especially beginners and salaried individuals:

• Rupee Cost Averaging protects you from market volatility.
• The power of Compounding helps your money grow exponentially over time.
• Flexibility to invest even ₹500 monthly.

Example of Compounding

Here’s how the power of compounding helps small, regular SIPs grow into substantial wealth when invested over a long period. If you invest ₹3,000/month for 20 years at 12%, check out the table below to know what you’ll get after 12 years.
 

This shows how ₹7,20,000 was invested over 20 years can grow over four times with disciplined investing and compounding at work.

Different Types of SIP

There are mainly four SIP types:

• Regular SIP - Fixed amount, fixed date
• Top-up SIP- Increases your SIP amount periodically
• Flexible SIP- You can increase or reduce the amount anytime
• Perpetual SIP- No end date unless you stop it manually

Top-Up SIP Example

A Top-Up SIP increases your investment amount periodically. Here's how increasing your SIP by ₹500 every year can boost your overall investment. Start with ₹2,000/month, increase by ₹500 yearly for 10 years  and check the table below:
 

By increasing your SIP gradually, you may respond to your increased income and increase your wealth without incurring sudden financial stress.

SIP vs Lump Sum: Which is Better?

To assist you in selecting the strategy that best fits your financial circumstances, this table contrasts lump sum versus SIP investments in a number of areas.
 

While lump sum offers higher returns in rising markets, SIP provides better cost averaging, lower risk, and convenience for regular savers.

Example- Investing ₹1,20,000 lump sum vs ₹10,000/month SIP for 1 year:

• Lump sum return @10%: ₹1.32 lakh
• SIP return @10%: ₹1.26 lakh

But SIP gives a better average entry price.

Objectives of SIP:

The main objectives of SIP are:

• Encourage regular investing
• Reduce investment risk
• Build long-term wealth
• Promote financial discipline

Example -If your goal is ₹20 lakh in 10 years at 12%, you need a SIP of ₹9,725/month.

Also Read - Why SIPs Are the Best Investment Strategy for Millennials in 2025

Who Should Invest in SIP?

SIP is ideal for:

• Salaried individuals
• Students starting with small savings
• First-time investors
• Housewives planning long-term goals

SIP Plan for ₹75,000 Income- Suppose if Riya earns ₹75,000/month:
 

• Expenses: ₹50,000
• Savings: ₹25,000
• Ideal SIP: ₹12,000/month

How to Start SIP in India?

Steps to start:

1. Complete KYC online or offline
2. Choose a mutual fund platform (Groww, Zerodha, Paytm Money, etc.)
3. Select fund category (Equity, Debt, Hybrid)
4. Enter SIP amount and date
5. Set an e-mandate from your bank

Example- Ramesh starts a ₹3,000/month SIP in Axis Bluechip Fund via the Zerodha Coin app in just 10 minutes.

Taxation on SIP Investments

SIP returns are taxed under capital gains:

• Equity Funds
  • Short Term (≤12 months): 15%
  • Long Term (>12 months): 10% (above ₹1,00,000/year)
     
• Debt Funds:
  • Taxed as per the income slab (post 1 April 2023 rules)

Example: Invested ₹1,00,000 in Equity SIP, redeemed ₹1,80,000 after 2 years:
Capital Gain = ₹80,000 -> Tax = NIL (below ₹1 lakh exemption)

How to Stop or Pause a SIP?

If needed, you can:

• Pause for 1, 6 months (depends on platform)
• Stop permanently by cancelling the e-mandate

Example - Rajesh lost his job and paused his ₹5,000/month SIP for 3 months using a App. No penalty was charged.

SIP for Long-Term Goals

Use SIPs for:

• Retirement planning
• Child’s education
• Buying a house
• Creating an emergency fund

Example- For a ₹1 crore retirement corpus in 25 years l@12%, the monthly SIP = ₹5,500.

Mistakes to Avoid in SIP Investing

• Stopping SIP during a market crash
• Investing without goals
• Ignoring fund performance
• Choosing the wrong fund category

Example- Sunita continued her SIP during the COVID crash. NAV dropped but recovered later, and her corpus went up to 40% in 2 years.

Conclusion

SIP is not just an investment tool, it’s a financial habit. Whether you’re a student, professional, or homemaker, starting a SIP early can make a big difference in the long run. You don’t need lakhs to invest,  just ₹500 a month and the patience to stay invested. 

FAQs on SIP in Mutual Funds
 

Q1. Can I skip one SIP month due to a low balance?
Yes, most platforms allow you to skip or pause SIP without penalty.

Q2. Is SIP only for equity mutual funds?
No, SIP can be done in equity, debt, hybrid, or even gold mutual funds.

Q3. Are SIP returns guaranteed?
No. SIP returns depend on market performance and fund selection.

Q4. Can I modify the SIP amount later?
Yes, you can increase or decrease SIP anytime via the fund platform.

Q5. Is it better to invest in SIP or PPF?
Both are good. SIP offers higher returns (10-12%) but with risk. PPF is risk-free with fixed interest (around 7.1%).

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